My previous three columns on income inequality have touched on its causes, the role that government and markets play in evening out consumption, and finally the extreme limits public policy plays in equalizing incomes. Now I will focus more on the middle class.
For most of recorded history there was no real middle class. Cities, technological growth and political freedom brought to the world a merchant class, but it was not until the industrial revolution was in full form that a large number of households entered what we think of as the middle class today.
In America, and especially the Midwest, this middle class was built upon an unsustainable combination of low-productivity, high-wage jobs in large factories. That version of the middle class was never sustainable and has been unraveling for a half-century.
The second half of the 20th century saw a new, different middle class emerge, with workers across many industries applying high value-added human capital to the production of goods and increasingly services. This is a sustainable middle class, built on work, in which most American households now belong.
Unsurprisingly, these new middle-class jobs required greater human capital investment. This brought about two wholly predictable outcomes as a higher share of folks go to college. First, college becomes more expensive as less-well-prepared students come to campus; and second, the return on the investment declines as more folks have a degree. It remains by far the best investment option available.
More time in school and more rapid technological change translate into greater income volatility among households. One statistical artifact of greater volatility is that a snapshot of income makes us look a lot more unequal than we are if we view earnings over a lifetime. My household provides a common example.
I entered college a few days after turning 18, meeting the poverty definition for four years. Afterward, nearly a decade in the Army had me earning middle class
wages. Leaving active duty, marrying and entering graduate school saw my household again beneath the poverty threshold.
In the 15 years I have been a professor my family income has ranged from just below the national median to the top 5 percent of earners. At any given year over the past 30, my household income was in each of the five income quintiles, including nine years in poverty. But on average we remain firmly in the middle class.
The income inequality lobby does a great job ignoring the lifetime earnings issue. Most likely this is because dispassionate analysis does not suit their purpose.
It would be surprising if this century didn’t see as much change in economic and class structures as did the last. If history is any guide, things will be better, not worse.
Still, two things remain certain. Education remains a route to economic comfort, not necessarily riches; and, for healthy folks, dodging poverty is easy. Avoid drugs, finish school and wait until you are grown up to have children.
Michael J. Hicks is the director of the Center for Business and Economic Research. Send comments to email@example.com.